Most of the statement announcing today’s decision sounded familiar, with only a couple of rhetorical flourishes here and there, but none of them were material. Most telling is the expanded reference to high household debt – the growing risks associated with the rapid accumulation of debt has been a recurring theme of recent RBA commentary. The guidance at the end echoed that provided after the Board meeting a month ago – officials later introduced the reference to developments in the housing and labour markets, but this was ditched today.
On global conditions, today’s commentary sounded even more upbeat than it did before, with officials referring to the latest upgrades to global growth forecasts and the tightening of labour markets. The pick-up in global activity has been “broad-based”. There was an additional comment today that the improvement offshore is helping to drive up Australia’s terms of trade (the ratio of export prices to import prices), but also an acknowledgement that commodity prices have retreated most recently.
On the domestic economy, today’s commentary was much the same as before, although there was an expanded section on the weakness in labour market conditions, relative to a month ago. There again was a separate paragraph that focussed on housing and debt, but the sentiments are pretty much the same as before. House prices continue to rise “briskly” in some markets, but are declining in others.
Today’s statement indicated that the RBA’s forecasts of growth in the Australian economy “are little changed”, meaning Friday’s quarterly statement from the Bank is unlikely to deliver any surprises. There was an update of the commentary on inflation following the release of the quarterly CPI data last week, but little new information was revealed. As before, RBA officials expect underlying inflation to rise as the economy strengthens.
Governor Lowe next speaks on Thursday on the contentious issues of household debt, house prices and resilience. He previously has highlighted that the rapid rise in household debt makes Australia’s economy more vulnerable to shocks, and he no doubt will return to this theme on Thursday.
Dr Lowe also has highlighted that Australians’ love affair with interest only mortgages is unusual, something the regulator APRA since has moved to address. Somewhat surprisingly, though, the specific mention by the RBA a month ago of riskier interest-only debt was dropped from today’s statement.